Archive for May, 2022

What Is A Home Warranty Protection Plan And Do Brooklyn Homeowners Need One?

Tuesday, May 31st, 2022
Computer moniter showing home warranty protection plan.

Have you seen a for sale sign in front of a home with a sign rider hanging from it that says home warranty protection plan included? What is a home warranty, and is it valuable?

I have found some confusion about what a home warranty is and how it works.

A home warranty protection plan is a service contract, not an insurance policy. 

Standard home warranties will cover all or components of a home’s major systems like electrical, plumbing, heating, and air conditioning systems. Coverage of home appliances and other components will vary depending on the company from which you purchase them.

Often you will see a seller offer a home warranty when they list their home for sale. This is because home warranties have become a popular inclusion in the sale of the house. However, if a seller does not include a home warranty with the sale of the property, a buyer can purchase a home warranty themselves. 

Existing homeowners can also purchase home warranties. They are not only for newly purchased homes.

What is the difference between a home warranty protection plan and homeowner’s insurance?. 

Homeowner’s insurance covers your home and personal belongings from significant dangers like fires, storms, and theft. Homeowner’s insurance also covers liability for injury of people who do not reside in your home if something occurs while on your property. In contrast, a home warranty will provide you with a reduced rate of repair expense for the covered systems and appliances defined in the policy coverage.

In this past blog post, you can learn more about homeowner’s insurance.

Although mortgage lenders require home insurance, a home warranty is an optional item. Both home insurance and a home warranty will be a safeguard if something goes wrong with your home but in different ways.

There are benefits to having a home warranty, but you need to understand how a warranty works.

Coverage varies by company. You need to thoroughly evaluate what is covered and what is not before deciding whether it is the right home warranty protection plan for you. You may want to look at several different warranty companies before deciding.

There are several reasons a seller would want to purchase one when they list their Brooklyn home for sale:

  1. They will receive coverage during the listing period.
  2. The seller is responsible for maintaining the property in its current condition until closing.
  3. If a covered item needs repairing before closing, its cost is limited to the service fee.
  4. A home warranty can be an incentive for a buyer, and they will likely ask for one in their offer.

The buyer also has several reasons they want to have a home warranty protection plan included in their home purchase:

  1. It provides buyers with the peace of mind that unexpected repair costs can be minimal shortly after closing a home.
  2. They may have to restore their savings after paying the closing costs before they can begin home repairs.
  3. If they are new to an area, they can access vetted service providers with one call.
  4. They don’t have the DIY experience to handle the repairs.

According to SoFi Learn, the average costs to repair are:

  • Electrical – $141 – $419 for minor repairs, $2,000 – $6,000 for full electrical wiring.
  • Roof Repair – $300 – $2,000 for partial repair.
  • HVAC – up to $577 for A/C repair, $5,000 – $12,500 for replacement.

Rocket Mortgage estimates an average home warranty costs between $300 – $600. One significant repair can cover the cost of the warranty.

Newly constructed home warranties are available.

The majority of home warranty plan purchases are for existing homes. You may not need to buy a home warranty when purchasing a newly constructed home. 

Many builders offer warranties on construction components. The new appliances should also have warranties provided by the manufacturer. Some private contractors may not have a warranty option; therefore, some home warranty companies offer an option for new homes. You can consider purchasing a home warranty protection plan when your builder and manufacture warranties expire.

Coverage under a home warranty will vary from company to company.

It is important to stress that not all home warranty coverage is the same, and you must read and understand the policy offered to you. In addition, if there are older systems in the home, they may not be able to be repaired due to the availability of replacement parts, making the replacement cost significantly higher.

How does a home warranty protection plan work?

Most home warranties have a required service fee. Service fees average around $100 per service call. 

You will need to contact the warranty company to file a warranty claim. Many companies require that you contact them first to receive a qualifying service provider’s contact information. However, many have exceptions for emergencies. Be sure to read the fine print.

When the service provider arrives, you will need to pay the service fee. After evaluating the situation, the service provider and warranty company will determine the necessary action to remedy the issue. Exclusions under warranty can incur additional expenses for the homeowner.

The pros and cons of home warranties include:

PROS

  • Peace of mind of paying for unexpected repairs.
  • Cost is limited to the service fee for covered items.
  • The convenience of using vetted service providers.
  • Reliability on the experience and skill of service providers.
  • The current warranty may be transferable if you sell your home.

CONS

  • Denial of claims due to coverage.
  • Contacting the home warranty company before contacting a service provider is often required.
  • A maximum dollar limit per year could apply.
  • The home warranty company has the authority to decide whether to repair or replace.
  • Appliance coverage is usually an additional cost.
  • Not all components and costs are covered.
  • Terms and conditions may be confusing or vague.
  • There are limitations and exceptions to a home warranty protection plan.

Do your research before selecting a home warranty plan.

Many real estate firms have recommendations based on their experience with home warranty companies. You may also want to check with friends and family to see if they have experience with any home warranty protection plans.

It is good practice to check with the Better Business Bureau rating on any company you consider using. 

The BBB bases ratings on:

  • The number of complaints.
  • The size of the business.
  • How well the company responds to complaints.
  • How quickly the company resolves complaints.
  • Whether the business made a good faith effort to resolve the complaint.

You can also search on the internet by merely typing the company name followed by “complaints” to find additional information.

Conclusion

A home warranty protection plan is often a reassurance to homeowners that they can save substantial expenses of repairs for their home. However, each individual must assess if a home warranty is right for them based on their financial situation, home condition, and knowledge of home repairs. Nevertheless, many homeowners have benefitted from having a policy.

Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. As a Brooklyn real estate agent with over 30 years of experience, I help buyers and sellers achieve their real estate goals. Reach me by phone at (718) 253-9500 ext. 1901 or email at [email protected]

Charles D'Allesandro

Why Should You Use A Real Estate Professional To Sell Your Home Now

Sunday, May 15th, 2022
Real estate agent holding house.

It is tempting to forgo the services of a real estate professional when you are selling your home in a hot real estate market. Although we are still in a favorable market, the increasing interest rates will lower the buying pool.

As interest rates increase, buyers who were on the margins of qualifying for a higher mortgage may now have to lower the price range of the home they are looking to purchase. This may reduce the pool of buyers in any given price range.

Along with the higher interest rates, increased inflation can reduce the amount of cash a buyer is willing to invest in their new home. This will begin to decrease the amount of competition for homes.

A real estate professional has the skills, experience, and expertise it takes to navigate the highly detailed and involved process of selling a home. That may be why the percentage of people who list their houses on their own, known as a For Sale By Owner or FSBO, is decreasing. 

Here are five reasons why selling with a real estate professional makes more sense, even in today’s hot market:

1. They Know The Buyer’s Hot Buttons

Before deciding which projects and repairs to take on, connect with a real estate professional. They have first-hand experience with today’s buyers, what the buyer expects, and what you need to do to ensure your house shows well.

If you don’t lean on their expertise, you may spend your time and money on something that isn’t essential. Previously, I discussed the possibility of over-improving your home in this blog post. In today’s low-inventory market, buyers are willing to take on more renovation work themselves. A survey from Freddie Mac finds that:

“. . . nearly two-in-five potential homebuyers would consider purchasing a home requiring renovations.” 

 In the hot real estate market we have been experiencing, the home inspection process has been less contentious than before the market fired up.

Familiarity with staging techniques to make your home more appealing to buyers is a strength of most real estate professionals. They tour a  lot of houses and know what makes a buyer light up.

A professional can help you decide what you need to tackle. It’s not canned advice you could find online – it’s recommendations specific to your house, price range, and area.

2. They Help Maximize The Number Of Buyers Who Tour Your Home

Recently, the average home has been getting 4.8 offers per sale, according to recent data from the National Association of Realtors (NAR), and that competition is pushing prices up. While that’s promising for you as a seller, it’s essential to understand your agent’s role in bringing buyers to your home.

Real estate professionals have various tools at their disposal, such as social media followers, agency resources, and the MLS, to ensure that most qualifying buyers view your house. According to realtor.com:

“Only licensed real estate agents can list homes on the MLS, which is a one-stop online shop of sorts for getting a house seen by thousands of agents and home buyers. . . . This is certainly one of many good reasons why the majority of home sellers decide to employ the services of a listing agent rather than going it alone.”

The real estate community is well-connected. Real estate professionals network with other real estate professionals sharing information on upcoming homes for sale and the buyers they represent. As a result, a well-connected real estate agent may share information about your home before the house is available to the public with real estate professionals who have buyers interested in homes like yours. 

Without access to these tools and networks, your buyer pool is limited. And you want more buyers to view your house since buyer competition can drive your final sales price higher.

3. They Understand The Legal Requirements

Today, more disclosures and regulations are mandatory when selling a house, whether you are using a real estate agent or doing it yourself. Unfortunately, the number of legal documents you’ll need to understand and utilize is increasing. That’s why Investopedia says:

“One of the biggest risks of FSBO is not having the experience or expertise to navigate all of the legal and regulatory requirements that come with selling a home.”

A real estate professional knows exactly what needs to happen, what all the paperwork means, and how to work through it efficiently. They’ll help you review the documents and avoid any costly missteps that could occur if you try to handle them on your own.

There are many timelines to meet after a contract is signed in that fine print! Your real estate professional will make sure everyone meets their deadlines to keep the agreement moving forward, prevent any loopholes for the buyer, and that your home will close on time.

4. Real Estate Professionals Are Trained Negotiators

If you sell without a real estate professional, you’ll also be solely responsible for all the negotiations. That means you’ll have to coordinate with:

  • The buyer – who wants the best deal possible.
  • The buyer’s agent – who will use their expertise to advocate for the buyer.
  • The inspection company – that works for the buyer and will almost always find concerns with the house.
  • The appraiser – who assesses the property’s value to protect the lender.

Instead of going toe-to-toe with all these parties alone, lean on an expert. They’ll know what levers to pull, how to address everyone’s concerns, and when you may want to get a second opinion.

There may be issues that arise during the sale of a home. An experienced real estate professional knows how to put out fires that may otherwise kill the deal.

5. They Know How To Set the Right Price for Your House

If you sell your house on your own, you may overshoot your asking price. That means you’ll leave money on the table because you priced it too low, or your house will sit on the market because you priced it too high. Pricing a home requires expertise.

. . . There is no easy or universal way to determine market value for real estate.”

Real estate professionals know the ins and outs of how to price your house accurately and competitively. To do so, they compare your house to recently sold homes in your area and factor in the current condition of your house. These factors are crucial to making sure your home is appropriately priced to move quickly while getting you the highest possible final sale price.

An experienced real estate professional knows how to price ahead of the market. This means that the price should not necessarily reflect what is happening today but what will happen in the next few weeks or months ahead. For example, if the buyer pool begins to shrink due to increased interest rates, the competition will not be the same as a few months ago. With fewer buyers in the market, sales prices may begin to stabilize. Pricing your home too high is a risk. Traditionally, an overpriced house sells for less than if priced correctly.

For Sale By Owner homes typically sell for 14% less than similar homes listed by real estate professionals. Paying a real estate commission would still yield a for sale by owner more profit than going it alone.

Bottom Line

There’s a lot that goes into selling your house. So instead of tackling it alone, reach out to a trusted real estate professional to make sure you have an expert on your side throughout the entire process.

Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. I can help buyers and sellers achieve their real estate goals. Reach me by phone at (718) 253-9500 ext. 1901 or email at [email protected]

Charles D'Allesandro

Brooklyn Homeownership Is A Step Toward Wealth Building

Sunday, May 1st, 2022
Property investment, house mortgage financial planning and real estate home refinancing concept with piggy bank saving budget and money coin stacks

Brooklyn homeownership is a foundational step to building your wealth.

Wealth building simply refers to increasing the net value of your total assets. Wealth building over time is one of the advantages of homeownership.

The calculation of net worth is simple. You calculate it by subtracting the amount of money you owe (liabilities) from the amount of money your possessions are worth (assets.) 

Net Worth = Assets – Liabilities

Brooklyn homeownership can help you build wealth in two ways. 

First, you build equity by paying down your mortgage. 

A percentage of each mortgage payment goes towards a reduction in the total amount owed. Typically, the first few years of mortgage payments apply to interest, not the principal. However, more and more of each payment is applied to the outstanding principal amount as time passes. Before you know it, your $300,000 loan is down to $50,000, and you’ve gained $250,000 in wealth.

The second way to build wealth through Brooklyn homeownership is appreciation. 

Each year, the value of your home will increase or decrease slightly based on market prices. However, over time, real estate has consistently appreciated. 

Home prices rose 18% in 2021, according to CoreLogic’s Home Price Index. Bank of America predicts a 10% appreciation rate through 2022, even with the expected interest rate increases.

Due to the unprecedented real estate market of 2021, home values rose thanks to low housing supply and high buyer demand. Unfortunately, there were not enough homes to meet this high buyer interest,  so bidding wars began driving home prices up. The rising prices mean your home is worth more in today’s market when you own a home. And as home values climb, your equity does too. 

How Rising Equity Impacts You

In addition to building your overall net worth, equity can also help you achieve other goals like buying your next home. It works like this: when you sell your house, the equity you built up comes back to you in the sale.

In a market where you’re gaining so much equity, it may be just what you need to cover a significant portion – if not all – of the down payment on your next home. So, if you’ve been holding off on selling and worried about being priced out of your next home because of today’s home price appreciation, rest assured your equity can help fuel your move.

As the mortgage interest rates begin to climb, buyers will be more eager to purchase now. So if you are considering selling, now is time to take advantage of the lack of inventory available to buyers.

Equity can be a real game-changer if you’re planning to make a move. 

Wealth Building Example

Let’s see a simple demonstration of how advantageous Brooklyn homeownership can be. Assume you bought a home in 2005 for $400,000 and, for simple mathematics, paid nothing for a downpayment. Over the next ten years, your mortgage payments reduce the outstanding mortgage by $100,000 and the home increases in value to $600,000. The value of your home as a net asset has grown to $300,000 [$600,000 minus $300,000 mortgage balance]! You would have missed out on $300,000 in wealth if you had rented during this period. 

Historically, homeownership is one of the best ways for families to build wealth. However, if you don’t currently own a home, you may want to consider purchasing now.

As inflation rises, the link between financial security and homeownership will become especially important.  As Leslie Rouda Smith, President of the National Association of Realtors (NAR), says:

“Homeownership is rewarding in so many ways and can serve as a vital component in achieving financial stability.”

Owning a Home Is a Building Block for Financial Success

Recently NAR conducted a report that details several homeownership trends and statistics. This information includes the difference between the net worth of homeowners and renters. The report stated that the net worth of a homeowner was about $300,000, while the wealth of a renter was about $8,000 in 2021. Therefore, a homeowner’s net worth is roughly 40 times higher than a renter’s. This report shows how owning a home can be a key factor when building your overall net worth.

Is the gap between a homeowner’s net worth and a renter’s surprising to you?

The net worth gap between owners and renters primarily exists because homeowners build equity. As a homeowner, your equity grows as your home appreciates in value and you make your mortgage payments each month.

In other words, when you own your home, you have the benefit of your mortgage payment acting as a contribution to a forced savings account. And when you sell, any equity you’ve built up comes back to you. But, as a renter, you’ll never see a return on the money you pay out in rent every month.

Additionally, homeownership provides you with a fixed monthly payment that will not increase with a fixed-rate mortgage. Renters expect an increase from year to year. Each annual increase affects your available cash for investing or saving.

If you are interested in buying a home, you need to ask yourself a few questions.

How much home can you afford? 

You need to meet with a mortgage lender to obtain a prequalification letter. The lender will review your financial information to determine your maximum mortgage amount. Your lender can explain the different mortgage options.

Where will you find the money?

Mortgages come at a cost. You most likely will need to have accessible cash for some portion of your purchase. Hopefully, you are actively saving for your home purchase. If you own a home, you may be able to tap into the equity to purchase a new home. In addition, some mortgages will allow you to receive gift money from a relative if you do not have adequate savings.

How can you continue to save money after buying?

Your lender will provide you with an amortization table that shows the total cost of the mortgage for the loan duration. It can be shocking to see the amount you will pay over time due to interest. You can cut the cost by paying your mortgage off early. Making additional payments toward your principal will save you on additional interest costs.

A biweekly mortgage instead of monthly can also save you money, Or simply add an extra payment each year, for a total of 13 payments and designate that it is to apply to your principal balance. This tactic could cut your mortgage by several years.

If you are interested in reducing the length of your home mortgage, speak with your lender and financial planner to see what will work best to meet your financial goals.

If you are a first-time homebuyer, you can find some helpful information in this previous blog post.

According to a recent Gallup Poll, real estate remains ranked top in America’s opinion of the best long-term investments since 2013. One significant advantage to Brooklyn homeownership, as opposed to other investment vehicles, is that you also have a place to live. 

Having a trusted real estate professional to help you, whether buying or selling, is crucial in this current real estate climate. In addition, an agent who knows the area and market well can be a valuable asset to your wealth-building team.

Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. As a Brooklyn real estate agent with over 30 years of experience, I can help buyers and sellers achieve their real estate goals. Reach me by phone at (718) 253-9500 ext. 1901 or by email at [email protected]
Charles D'Allesandro